Pointing to the current volatility in public markets, triggered by geopolitical conflicts that are affecting supply chains, recessionary fears and interest rate hikes alongside a steady global macroeconomic slump, Kamath cautioned that if this trend continues, the overall revenues for Zerodha can be down by almost 40% in FY24.
“The revenue dip has not kicked in (with the volatility). We will probably end the fiscal (FY23 in revenues) 20% over what we clocked a year before. But I am not sure if we will hit that number next year,” he said.
ETtech“Currently the stock market is also competing with other asset classes like T-bills and gold for instance,” said Kamath.
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“It is hard to say what will happen. But if the market continues like this there will be a 30-40% dip in revenues. And new account openings are already down 50-60% from all-time highs,” he said.
In keeping with its growth trend in the previous fiscal, the Bengaluru-headquartered brokerage is expected to clock total revenue (including interest income) of around Rs 5,956.8 crore and net profit of Rs 2,513.6 crore in fiscal year 2023. These numbers are not audited yet.
ETtechZerodha saw its net profit increase 87% in FY22 to Rs 2,094.3 crore from Rs 1,122.3 crore in FY21 and recorded overall income of Rs 4,964 crore for FY22, as reported by ET earlier this year.
In the fiscal year that just closed at March end, Zerodha also earned interest income from its investments (or profits) in fixed deposits, or government securities, boosting its overall revenue for the year. This has also cushioned a plateauing of revenue from broking services for the firm as compared with the boom in demand for stock broking services during the pandemic years.
“This March (2023) is the lowest month since March 2020, in terms of new user acquisition but our overall market share has gone up. And that shows it is bad for the overall market as well,” Kamath said.
“It has been trending down over the last six months. The volatility also means that existing customers are trading a bit more, which is compensating for the loss in active users,” he added.
Zerodha is also offering customers the choice of investing in fixed income products such as government securities to avoid the churn caused by losses from stock investments.
A year of correction
Several new-age technology businesses have had to change course amid the upheaval caused by global macroeconomic trends. Zerodha’s Kamath said that the company will not make “random” calls to sustain its revenue peaks.
“I am okay with 50% of revenues next year. We all acknowledge that we got lucky to be at the right place and right time when the market expanded,” he said.
ETtechAcknowledging that business will be impacted “when the market does a big draw down in terms of participation,” Kamath said that he will not be “forced to make random (changes) to make sure there is no drop in revenues.”
The company is also expected to launch its in-house order management system (OMS) this year, which has been in the works for some time in a bid to remove its reliance on legacy systems.
The new OMS, christened Enigma, will help it drop nudges to customers, helping them make fewer money mistakes, the 43-year-old founder said.
The larger correction in revenues also comes at a time for Zerodha, when several fintech platforms such as PhonePe with large captive audiences are also firming plans to enter the broking business, even as retail participation in public markets dips.
Meanwhile, Tiger Global-backed Groww, which has not been able to close its fresh round of funding at desired $5 billion valuation, saw its losses bloat up to Rs 239 crore in FY22 while clocking operating revenue of Rs 350 crore.
Pointing that the entry of large platforms is important for overall market expansion, Kamath said, “For some of the newer online players who have spent a lot of money competing with us — they might have the users, but they don’t have the AUM (asset under management). One must do what builds a credible business.”
At present, Zerodha has a client base of around 11.2 million users, of which approximately 6.4 million are active.
AMC on the anvil
In 2021, Zerodha received in-principle approval from markets regulator Securities and Exchange Board of India (Sebi) to set up an asset management company (AMC) and is now awaiting a final nod.
“There are no new observations, and we are just waiting for the final nod from the regulator. We will launch two to three months after the approval is received,” he said.
However, Kamath has been noticeably clear, in the past, that the AMC will focus on passive products, which increasingly have been taking a pie of overall equity assets in the country.
But at the heart of it, Kamath said, is to make investing simple for investors.
“It will be passive only and the idea is to keep it simple to three to four funds. What one can do differently with an AMC is keep it simple and there is an opportunity to be a thought leader in passive-only funds,” he said. He added though India still is not a big-enough market to build a large passive business in terms of revenues, “it is a 10-15-year project”.
Startup winter and tech IPOs
The volatility of public markets has caused new-age tech companies such as direct-to-consumer brand Mamaearth and hospitality major Oyo to go back to the drawing board on their listing plans. Stocks of Indian tech majors such as Zomato, Paytm and Nykaa have dropped sharply from their listing price.
“As an entrepreneur it is not what you say at an IPO, but what you say continuously. Because you need to be setting expectations right all the time,” said Kamath.
The founder also added that until now (in private markets) what got “rewarded was overselling”.
“But as soon as you IPO, under-selling and over performing is what gets rewarded,” he said.
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